European Union: Privacy Shield Update – A Look At The Regulators' Recommended Changes

Earlier this year, the European Commission
announced the potential replacement for the EU-US Safe Harbor
scheme. The so-called 'Privacy Shield' is intended to be
the new mechanism upon which EU-US personal data transfers will be
based. A month after the Commission's announcement, the draft
text of the Privacy Shield adequacy decision (the
"Draft") , complete with
lengthy and numerous annexes, was
published.

Since its publication, the Draft has been under review by the
Article 29 Working Party – the collective group of European
data protection authorities, or "DPAs"
("WP29"). Following the conclusion of
this review process, WP29 recently published Opinion 01/2016 on the EU-US Privacy Shield draft
adequacy decision (the "Opinion").
The Opinion analyses and reviews the entirety of the Draft, with
WP29 making various comments, recommendations and voicing certain
criticisms. We take a look at these.

Unclear and inconsistent

Although welcoming many aspects of the Privacy Shield,
particularly with respect to improvements made over Safe Harbor,
WP29 highlights inconsistencies and a general lack of clarity in
the Draft. In particular, given the length of the draft text and
annexes, WP29 does not consider the Draft accessible. Similarly, it
draws attention to the lack of clarity in the language used in the
Draft and the need for it to be clear and based on a common
understanding on both sides of the Atlantic. In this respect, WP29
has recommended:

A separate annex providing a glossary
of core terms for all stakeholders;

Where possible, the use of vocabulary
and terminology that is consistent with EU data protection
law;

Consistent use of terminology
throughout the Draft; and

Including various missing definitions
throughout the Draft;

'Essential Equivalency' and 'European Essential
Guarantees'

One of the key concepts arising from Schrems, and underpinning the Opinion, is that of
'essential equivalency'. In Schrems, the EU Court
of Justice ("CJEU") indicated that the
wording "adequate level of protection" in
respect of an Article 25(6) adequacy decision – such as Safe
Harbor or the Privacy Shield – must be understood as
requiring a level of data protection that is "essentially
equivalent" to that under EU law. WP29 notes that the Draft
does not contain any adequacy report, which would have provided a
comprehensive assessment of the domestic and international
commitments of the US.

Interestingly, WP29 has established a separate doctrine, dubbed
the 'European Essential Guarantees'. These guarantees were
developed by WP29 in the context of CJEU and European Court of
Human Rights decisions. The guarantees provide a useful yardstick
to appraise the laws and practices of any non-EEA recipient country
which could be deemed to interfere with a fundamental right (such
as processing for national security or law enforcement purposes).
The guarantees are not intended to be applied rigidly or
independently; instead, they are meant to be considered in the
round. Furthermore, WP29 intends that they be applied whatever the
transfer mechanism, condition or derogation that is relied
upon.

In short, the four guarantees require that
processing, which could be deemed as an interference with a
fundamental right,:

should be in accordance with the law
and based on clear, precise and accessible rules;

Exceptions for Law Enforcement and National Security

In its Opinion, WP29 applies these newly-developed
'guarantees' to analyse the circumstances in which the
Privacy Shield obligations can be disapplied due to the needs of
national security or law enforcement. In applying the guarantees,
WP29 underlines the fact that, while exceptions for national
security and law enforcement may be permitted, they must still be
"justifiable in a democratic society". Despite
welcoming the advances in transparency and indicating that
oversight mechanisms are largely satisfactory, WP29 highlights the
following points in respect of national security:

In certain circumstances, non-US
based individuals lack equivalent rights and protection,
particularly in the context of Fourth Amendment rights, which
prohibit unreasonable searches and seizures and require probable
cause for warrants.

The Draft indicates the potential for
continuing existence of "massive and
indiscriminate" data collection. Sufficient restrictions
on US government surveillance activities do not appear to be
envisaged in the Draft.

The existence of effective remedies
for individuals remains a concern for WP29, particularly given both
a lack of clarity on what situations individuals can bring a claim
and questions around the independence of the proposed
Ombudsperson.

In terms of access to personal data for law enforcement
purposes, WP29 welcomes and recognises the effort of US
authorities. The investigative tools and limitations and safeguards
proposed in the Draft, according to WP29, are both extensive and
complex. In particular, WP29 notes the fairly robust oversight
mechanism under the Draft. WP29 does, however, suggest that despite
the availability of no-cost redress mechanisms, there is a need to
involve DPAs given individuals' language barriers and lack of
knowledge of the US legal system. However, given the limited
information available in the Draft and the fragmented nature of the
applicable US laws, procedures and policies, WP29 was unable to
provide a comprehensive assessment of the law enforcement
guarantees. Despite this, WP29 envisages that a full review of
these guarantees might be part of an annual review of the Privacy
Shield.

What About Data Processors?

One of the core issues raised by WP29 relates to the application
of the Privacy Shield to US-based data processors. Under EU data
protection law, data processors are entities that act on behalf of
and on the instructions of data controllers. Processors are often
likened to an agent of the controller. In particular, WP29 points
to the fact that the draft text is primarily
controller-, rather than processor-, focused. WP29 has
pointed to a number of the Principles contained in the Privacy
Shield, which it believes are unsuitable for data processors. It
suggests that specific rules must be provided to address data
processors.

The Principles

As described in our previous
post, the Draft includes seven key 'Principles' that
reflect similar principles that applied under Safe Harbor. WP29 has
reviewed these Principles and raised various concerns. According to
WP29, a number of the Principles do not adequately address the
obligations and requirements arising under EU data protection law.
In particular, it has "serious concerns" around
the inconsistency in terminology across the Principles.

One such issue relates to the potential clash between the
Principles of purpose limitation and choice. In this respect, WP29
points to the ability for a US-based importer to rely on an opt-out
mechanism, under the choice Principle, in order to
process data for additional, materially different
purposes, which is not adequately defined. This, however,
appears to erode the purpose limitation Principle which restricts
the processing of personal data for new purposes that go beyond the
original purposes for which it was collected. Furthermore, WP29 has
particularly highlighted an apparent gap in the Draft regarding the
data retention principle, as the Draft does not oblige
organisations to delete data if the data is no longer
necessary.

Onward Transfers

Another concern raised by WP29 relates to 'onward
transfers' – transfers of personal data from the US-based
importer to a third party. The Privacy Shield is, according to
WP29, equally applicable to both initial transfers to the US entity
and to onward transfers. However, WP29 has raised national security
and law enforcement concerns around onward transfers, particularly
highlighting "the risk of unjustified interferences with
... fundamental rights". Where onward transfers are
envisaged, US-based organisations participating in Privacy Shield
must assess the third party recipient's local laws and confirm
that the personal data will be subject to the same level of
protection. Despite this, WP29 takes the position that where the EU
data controller is aware of the onward transfer before the US
transfer takes place, or where the EU controller is jointly
responsible for such transfer, it will be considered a direct
transfer, meaning that the data is deemed to be transferred
directly from the EU entity to the third party recipient. This
means that an alternative transfer condition or mechanism –
such as Standard Contractual Clauses – must instead be relied
upon.

What Comes Next?

It is worth noting that during its assessment of the Draft, WP29
had the opportunity to meet with the Commission and US
representatives. In the course of these meetings, some
clarifications were provided, albeit informally. WP29 expects these
to be put on a firm footing. Furthermore, WP29 signalled that, in
addition to its existing comments and recommendations, it may
find further issues with the Draft at a later date.

Strictly speaking, the Opinion cannot halt the progress of the
Draft. However, the WP29 members – the DPAs – play an
important role in data protection in the EU. Consequently, the
Commission may take on board and implement some of the
recommendations and suggestions made, with the intention of staving
off potential challenges down the line.

Next, a committee made up of representatives from each EU Member
State, the Article 31 committee, will consider the Draft.
It must be approved by a qualified majority of this committee. Once
the Draft has been through this procedure, the Commission may adopt
the decision formally, and it will become effective. Of course, it
is always open to the committee or the European Parliament to refer
aspects of the Draft to the CJEU for a determination of their
compatibility with EU law. Based on current progress, and in the
absence of any significant stumbling blocks, the Privacy Shield
could be published by mid-Summer. Watch this space.

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The House of Commons Library, which aims to provide impartial research and analysis to MPs and their staff, has published a briefing paper on the impact of Brexit on data protection law in the UK ("the Paper").

With less than a year to the introduction of the General Data Protection Regulation (EU) 2016/679 and given its far reaching effect on those who process personal data, it is important to consider the potential consequences...

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